Hopes Pinned on Cash Flows

The real estate market has slumped since 2008 and remains stuck in crisis. Many analysts believe that the market is now somewhere at the bottom and is likely to recover soon on policy support and returning cash flows. Bottom tracking

The real estate market has slumped since 2008 and remains stuck in crisis. Many analysts believe that the market is now somewhere at the bottom and is likely to recover soon on policy support and returning cash flows. Bottom tracking

The prolonged slump of the real estate market has resulted in tardy progress of many investment projects. Many completed projects are unsellable, causing an increase in inventories. Many lawsuits and disputes between investors and buyers occur. Debts have piled up. Banks are suffering huge bad debts because of real estate. And, as matter of fact, defaults related to property investment and speculation are on the sharp rise.

Savills Vietnam announced the property price index for the second quarter of 2013. Accordingly, the Savills Property Price Index (SPPI) for Hanoi residential area was 104.7, dropping 3.6 points quarter on quarter and down 17.7 points year on year. The index has decreased for eight consecutive quarters. The market’s average price, including new projects, has dropped 30 percent since the second quarter of 2011 due to the entrance of new projects and the price reduction of existing projects.

However, the market always follows its rules. The hardest time is also the bottom of the market. Indeed, the Vietnamese property market has witnessed strong movements during this gloomy period, that is, mergers and acquisitions (M&A). Enterprises have the opportunity to possess properties at low prices. Foreign investors are also very keen on low-price property projects in Vietnam.

The rise in M&A deals since the beginning of the year is considered an important indicator of market-bottom area. The market has established its lowest-price region and experts expect new signals of recovery. CBRE Vietnam said investment requests sent to CBRE rose 30 percent in the second quarter 2013 from a year ago.

Analysts expect the market will recover in this year’s end from the bottom area. According to Savills, after increasing continuously during 2012, the inventory ratio decreased in the first two quarters of 2013. The ratio declined by 2 percentage points, reaching 93 percent due to an increase in absorption.

At the Vietnam M&A Forum 2013 held in early August, Marc Towsend, Executive Manager of CBRE Vietnam, said, “Some segments of the real estate market have showed signs of bottoming out and started to change the direction. I believe that the market is gradually opening up the road to recovery.”

In the past three years, real estate speculators have been hard hit and run away. Currently, the market is primarily for end-buyers.

Returning cash flows

Many are sceptical about the market-bottom conclusion because it is likely the desire of property businesses. But, analysts pointed out that the soft loan package for affordable housing worth VND30 trillion (US$1.4 billion) was a clear message of market support even at the toughest time of the market. The Government is taking steps to handle bad debts, mostly real estate loans. Localities are also positively improving investment environment for foreign investors.

According to Savills, the SPPI for Ho Chi Minh City residential area is on the rise after touching the bottom in the second quarter of 2012. Better product structure and government policies like lowered interest rates are indirectly improving the confidence of home buyers.

In Hanoi, the market began to witness the price increase in apartment segment. One year ago, the VP3 Linh Dam Apartment Block was offered at VND20-22 million per square metre but the current quotation was VND24-25 million. However, price hike is not a common trend of the market. Buyers are keen on well-invested finished apartments, not incomplete ones.

The increasing credit for real estate is also another signal for the backing to the real estate market. At the meeting of the Central Steering Committee for Housing Policy and Real Estate Market on August 9, 2013, the Ministry of Construction said total credit outstanding of real estate was VND237.5 trillion at the end of May, an increase of 4 percent from the end of 2012. Particularly, loans for office construction and home-buying increased most.

Coupled with rising outstanding credit for real estate is the considerable drop in lending rates in 2013 to 11-13 percent. Now, banks are opening the credit valve for good-performing companies and effective projects.

The Ministry of Construction said real estate inventories are estimated to reach VND108.8 trillion, down 15.4 percent from the first quarter. In particular, stockpiled condominiums are 27,800 units and low-rise houses are 15,000 units, covering nearly 10 million square metres of land. Besides, more than 2 million square metres of commercial housing land are also in stockpile. The data were generalised from reports from 56 out of 63 provinces and cities.

Another support for the recovery of property market is the ease of regulations on foreign housing buying. Construction Deputy Minister Nguyen Tran Nam has submitted to the Prime Minister a report on the actual implementation of Resolution 19 that allows foreign organisations and individuals to purchase and possess houses in Vietnam on a pilot principle. The report also proposes amendments and supplements to this resolution to further ease foreign housing ownership regulations.

The Ministry of Construction proposed that foreign organisations and individuals are allowed to buy and own apartments and separate houses, including villas, semidetached houses and detached houses with area not exceeding 500 square metres in commercial housing projects, new urban zones or vacation property projects.

These changes, if approved, will give a boost to the market recovery. Cash flows are returning from banks and from buyers. If capital flows from this channel are unlocked, the market will be supported more strongly for revival.
Bao Chau